The International Monetary Fund (IMF) said today that higher income tax rates for the rich will tackle rising inequality. Given the fact that various countries are suffering the consequences of sharp social divides between the poor and the rich, the IMF recommended that such countries should develop tax policies and transfers to redistribute wealth in a more fair and balanced manner. 

In its Fiscal Monitor: Tackling Inequality, the IMF focused on “how fiscal policy can help governments address high levels of inequality while minimizing potential trade-offs between efficiency and equity.” It documents trends in income inequality, redistributive fiscal policies, while highlighting the significance of appropriate design to minimise costs.

The monetary fund warned that inequality within countries would eventually result in slower economic growth and extreme politics. The Fund’s Fiscal Monitor report stated: “Progressive taxation and transfers are key components of efficient fiscal redistribution. Optimal tax theory suggests significantly higher marginal tax rates on top income earners than current rates.”

While Trump’s administration’s tax proposals focus on cuts for the rich and businesses, the IMF wants to do exactly the opposite. Instead of sharpening inequalities and boosting existent wealth, its message appears to develop a more democratic way of dealing with social hierarchies and wealth distribution.

The IMF seems to also want to address the current political situation and changes across Europe and the US, with the rise of right-wing populism, Trump’s election and the UK referendum to leave the EU, which were triggered by the majority of voters disaffected with mainstream parties, globalisation and rising inequality.

Vitor Gaspar, director of the IMF’s Fiscal Affairs Department, said that inequality was on the up: “It is important to emphasize that inequality has increased in the largest countries in the world: China, India and the United States.”

The IMF pointed out that rising inequality in advanced economies such as the US was the result of the concentration of wealth held by the 1% of the population and in low-income developing countries the result of economic wealth being also the privilege of a small group of people. 

The IMF’s analysis is a clear attack on the rationale for reductions in tax for the highest earners, and as the Guardian pointed out, it is almost certain that the IMF’s findings would be “seized on by Labour.”